3i holds €250m first close on mid-market fund

The debt management arm of the private equity group 3i is broadening out its investor base.

3i Group has held a first close on its debut European mid-market loan fund on roughly €250 million, the investment firm announced in a statement.

Its debt arm, 3i Debt Management, is more recently known for raising CLO funds but the European Middle Market Loan Fund has been launched as part of a strategy to broaden 3i’s investor base, Andrew Bellis, managing director and partner of 3iDM, told PDI that there will likely be several more closings.

The fund will predominantly invest in senior secured, floating-rate loans to European mid-market companies and will target returns of Euribor plus 5 to 7 percent. Investments will target transactions at the smaller end of what 3i typically looks at.

The groups CLOs, which invest in bigger more liquid loans, appeal to more leveraged types of investors such as hedge funds. Its latest fund is designed to appeal to longer duration investors like pension and insurance funds.

CLOs can be “too structured” for certain investors, such as pension and insurance funds, Bellis said. “This fund is designed to target the less liquid end of the loan market.” The fund will not be leveraged, differing from 3i’s CLOs, which target equity returns in the low double-digits to low teens.

Jeremy Ghose, managing partner and 3i DM chief executive, commented in a statement: “We are delighted to announce the first close of our European Middle Market Fund. We have already raised close to $3bn this year through 5 CLOs and today’s news demonstrates progress towards achieving our aim to diversify into additional products which meet investors’ needs.”

3i DM has raised two US CLOs (COA Summit and Jamestown IV) and three European CLOs (Harvest VIII, Harvest IX and Harvest X) to date in 2014 totalling $2.8 billion.